Is Alibaba looking to acquire ShopClues?

Image credit: ThinkstockChinese internet behemoth Alibaba, which aims to enter the domestic e-commerce market by early next year, has held discussions to acquire online marketplace ShopClues, which is valued at over $1 billion. Alibaba wants to merge the marketplace of Paytm, in which it has a stake, with the much bigger rival ShopClues, as it is prospecting several acquisition targets to firm up an India entry against rival Amazon, people familiar with the matter said.

The Gurgaon-based ShopClues counts GIC of Singapore, Tiger Global, Nexus Venture Partners and Helion among its investors and has raised about $250 million till date. ShopClues is positioned as an online flea market, selling cheaper and mostly unbranded merchandise to value shoppers. The company, which is one among the top takeover targets in Indian e-commerce, is said to be reporting a revenue run-rate of $750 million based on the gross merchandise value of the goods sold.

Investment bankers have taken multiple deal proposals to Alibaba in recent months. The Jack Ma-led Chinese giant is looking to sew up consolidation moves to challenge Amazon, which has already emerged as the country's second-largest online marketplace and is seen threatening Flipkart's leadership. This includes picking up a substantial stake in Flipkart and merging smaller Indian rivals with it, or scaling up investments in Snapdeal in which it is currently a small shareholder.

The media has speculated about Alibaba's interest in Flipkart, though these parleys have stalled over differences in valuations. Incidentally, Flipkart has also been rumoured as a potential suitor for ShopClues since Tiger Global is a large common investor in both.

Former Zynga and Yahoo executive K Guru Gowrappan, who has been mandated to chart Alibaba's growth in Asian markets (excluding China), is driving the M&A talks with the senior management of ShopClues, sources said. Gowrappan, who joined Alibaba in November last year, is spending more time in India to finalize Alibaba's entry strategy. Sources said he was about to join the board of One 97 Communications, the parent of Paytm, and is working from the latter's offices in Noida.

When contacted, ShopClues co-founder Radhika Agarwal declined to comment on the phone. Emails sent to her and the company spokesperson went unanswered. "As a company policy, we do not in principle comment on rumours about our business plans in the media. India is an important emerging market with great potential and we are absolutely committed to developing this market for the long term. We see the market as a natural progression of our strategy to expand Alibaba's global footprint, and believe that it offers tremendous opportunities for the expansion of our ecosystem for doing commerce globally," an Alibaba spokesperson said in an emailed response.

Sources cautioned that the talks with ShopClues may not lead to a transaction. Alibaba could value ShopClues at around $1 billion but the company's management is negotiating for a higher valuation. The upcoming Diwali festival season sales would determine the valuations of several Indian e-commerce companies which are in the M&A ring currently.

Meanwhile, Alibaba group, which holds about 40% stake in Paytm, has already started the process to separate the Noida-based company's core payment business and the smaller commerce business into two separate entities. Alibaba is keen on migrating the struggling and cash-guzzling marketplace of Paytm into one of the larger combinations it is pursuing in the country. Paytm clearly sees its future as a payments company and has attempted to find a new investor or sell off the commerce in recent past.